The British Pound benefits from USD weakness and uncertainty over BoE rate cuts

An Unforgettable Event Elevating Trading Education 

The British Pound (GBP) rises to near 1.2750 against the US Dollar (USD) in the London session. The GBP/USD remains firm as bets supporting the Bank of England (BoE) to cut interest rates since the June meeting have decreased due to the slower-than-expected moderation in UK consumer inflation for April.

Economists forecasted that the UK’s headline inflation would fall to 2.1% year-on-year in April, but it slowed to 2.3% from the previous reading of 3.2%. Additionally, a nominal decline in UK services inflation deepens fears that inflation will remain persistent for a longer period. UK services inflation slowed slightly to 5.9% from the previous reading of 6.0%. Persistent UK services inflation has been a significant barrier to price pressures returning to the 2% target rate.

However, other economic indicators, such as retail sales and the preliminary Purchasing Managers’ Index (PMI) report for May, suggest that the UK economy is struggling to absorb the consequences of higher BoE interest rates. Retail sales decreased significantly as rain reduced consumer footfall in retail stores. The May S&P Global/CIPS composite PMI was dragged down due to a sharp decline in demand in the services sector.

Technical Analysis: The British Pound appears well-established above the 61.8% Fibonacci retracement.

The British Pound remains firm against the US Dollar in a low-volume trading session due to holidays in the UK and the US. Although trading activity is expected to remain quiet, any surprise movement due to the occurrence of a global event could trigger a sharp directional move, as fewer market participants would struggle to absorb unexpected orders.

The British Pound trades near Friday’s high around 1.2750. The GBP/USD pair is expected to extend higher above the weekly high near 1.2760 as the outlook is bullish. The appeal of the Pound remains high as it has established a firm base above the 61.8% Fibonacci retracement (drawn from the March 8 high of 1.2900 to the April 22 low of 1.2300) at 1.2667. The Pound is expected to remain on the upward trajectory as all short to long-term exponential moving averages (EMAs) are tilted upwards, suggesting a strong uptrend.

The 14-period RSI has moved into the bullish range of 60.00-80.00, indicating that momentum has tilted to the upside.